The New Deal

Overview

The New Deal was a set of domestic policies enacted under President Franklin D. Roosevelt that dramatically expanded the federal government’s role in the economy in response to the Great Depression.

Historians commonly speak of a First New Deal (1933-1934), with the “alphabet soup” of relief, recovery, and reform agencies it created, and a Second New Deal (1935-1938) that offered further legislative reforms and created the groundwork for today’s modern social welfare system.

It was the massive military expenditures of World War II, not the New Deal, that eventually pulled the United States out of the Great Depression.

Origins of the New Deal

The term New Deal derives from Franklin Roosevelt’s 1932 speech accepting the Democratic Party’s nomination for president. At the convention Roosevelt declared, “I pledge you, I pledge myself, to a new deal for the American people.” Though Roosevelt did not have concrete policy proposals in mind at the time, the phrase "New Deal" came to encompass his many programs designed to lift the United States out of the Great Depression.1^1​1​​start superscript, 1, end superscript

The New Deal created a broad range of federal government programs that sought to offer economic relief to the suffering, regulate private industry, and grow the economy. The New Deal is often summed up by the “Three Rs”:

relief (for the unemployed)

recovery (of the economy through federal spending and job creation), and

reform (of capitalism, by means of regulatory legislation and the creation of new social welfare programs).2^2​2​​start superscript, 2, end superscript

Roosevelt’s New Deal expanded the size and scope of the federal government considerably, and in doing so fundamentally reshaped American political culture around the principle that the government is responsible for the welfare of its citizens. As one historian has put it: “Before the 1930s, national political debate often revolved around the question of whether the federal government should intervene in the economy. After the New Deal, debate rested on how it should intervene.”3^3​3​​start superscript, 3, end superscript

The First New Deal (1933-1934)

At the time of Roosevelt’s inauguration on March 4, 1933 the nation had been spiraling downward into the worst economic crisis in its history. Industrial output was only half of what it had been three years earlier, the stock market had recovered only slightly from its catastrophic losses, and unemployment stood at a staggering 25 percent.4^4​4​​start superscript, 4, end superscript

Political cartoon satirizing the "alphabet agencies" of the New Deal. Even contemporaries had trouble remembering all the acronyms. Vaughn Shoemaker, Chicago Daily News, 1935. Image courtesy Wikimedia Commons.

The First New Deal began in a whirlwind of legislative action called “The First Hundred Days.” From March through June 1933, at Roosevelt’s behest, Congress passed legislation aimed at addressing the banking crisis, unemployment, and weak industrial performance, among other problems, through an “alphabet soup” of new laws and agencies. Among these, some of the most important were:

The Agricultural Adjustment Act (AAA), which boosted agricultural prices by offering government subsidies to farmers to reduce output.

The Civilian Conservation Corps (CCC), which employed young, single men at federally funded jobs on government lands.

The Federal Emergency Relief Act (FERA), which gave federal grants to states that funded salaries for government workers as well as local soup kitchens and other direct-aid to the poor programs.

The National Recovery Act (NRA), which sought to boost businesses’ profits and workers’ wages by establishing industry-by-industry codes that set prices and wages, as well as guaranteeing workers the right to organize into unions.

The Federal Deposit Insurance Corporation (FDIC), which guaranteed individuals that money they deposited in a bank would be repaid to them by the federal government in the event that their bank went out of business.

In 1934, Roosevelt supported the passage of the Securities and Exchange Commission (SEC), which brought important federal government oversight and regulation to the stock market.

The Second New Deal (1935-1938)

The second phase of the New Deal focused on increasing worker protections and building long-lasting financial security for Americans. Three of the most notable pieces of legislation included:

The Works Progress Administration (WPA), which employed millions of Americans in public works projects, from constructing bridges and roads to painting murals and writing plays.

This mural in San Francisco's Coit Tower was supported by the Works Progress Adminsitration. Many post offices and other public buildings became canvases for WPA murals.Image courtesy Wikimedia Commons.

The Wagner Labor Relations Act, which guaranteed workers the right to form unions and bargain collectively.

The Social Security Act, which required workers and employers to contribute—through a payroll tax—to the Social Security trust fund. That fund, in turn, makes monthly payments to retirees over the age of 65, as well as to the long-term disabled.

The Fair Labor Standards Act, which mandated a 40-hour work week (with time-and-a-half for overtime), set an hourly minimum wage, and restricted child labor.

The legacy of the New Deal

Roosevelt’s New Deal sought to reinvigorate the economy by stimulating consumer demand. The New Deal embraced federal deficit spending to promote economic growth, a fiscal approach that came to be associated with the British economist John Maynard Keynes. Keynes argued that government spending that put money in consumers' hands would allow them to buy products made in the private sector. Then, as employers sold more and more products, they would have the money to hire more and more workers, who could afford to buy more and more products, and so on.5^5​5​​start superscript, 5, end superscript In this way, Roosevelt and his supporters theorized, the Great Depression’s downward economic spiral could be reversed.

The New Deal was only partially successful, however. The Supreme Court ruled against several New Deal initiatives in 1935, leading a frustrated Roosevelt to suggest expanding the Supreme Court to as many as fifteen Justices (a political misstep that would haunt him for the rest of his career).6^6​6​​start superscript, 6, end superscript Despite the New Deal's lofty dreams, the United States only fully recovered from the Great Depression due to massive military spending brought on by the Second World War.

Nevertheless, key elements in the New Deal remain with us today, including federal regulation of wages, hours, child labor, and collective bargaining rights, as well as the social security system.7^7​7​​start superscript, 7, end superscript

What do you think?

How was the New Deal's approach to the crisis of the Great Depression different from previous responses to economic slumps in American history?

Which do you think played a larger role in ending the Depression: the New Deal or World War II? Why?

What aspects of the New Deal, if any, do you see in American society today?